APES 320 Quality Control for Firms-Revised.pdf

8/11/2019 APES 320 Quality Control for Firms-Revised.pdf

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APES 320 Quality Control for Firms

APES 320 Quality Control for Firms is based on International Standard on Quality Control (ISQC 1) (aspublished in the Handbook of International Auditing, Assurance, and Ethics pronouncements) of theInternational Auditing and Assurance Standards Board, published by the International Federation ofAccountants (IFAC) and is used with permission of IFAC.


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APES 320QUALITY CONTROL FOR FIRMS

(Reissued May 2009)

CONTENTS

Paragraphs

Scope and application 1

Definitions 2

Objective 3-5

Applying and complying with relevant requirements 6-9

Elements of a system of quality control 10-13

Leadership responsibilities for quality within a Firm 14-18

Relevant Ethical Requirements 19-37

Acceptance and continuance of Client relationships and specific Engagements 38-46Human resources 47-57

Engagement performance 58-105

Monitoring 106-123

Documentation of the system of quality control 124-129

Effective date 130

Conformity with International Pronouncements

Appendix: Application requirements for Firms

Legal enforceability

The Auditing and Assurance Standards Board (AUASB) has issued auditing standards as legislativeinstruments under the Corporations Act 2001, effective for financial reporting periods, which commencedon or after 1 July 2006. For Corporations Act audits and reviews, those standards have legalenforceability. To the extent that those legally enforceable auditing standards make reference to thequality control requirements for Firms issued by a Professional Body, the requirements of APES 320have the same level of legal enforceability in respect of Corporations Act audits and reviews. This is dueto the linkages with Auditing Standards ASA 200 Overall Objectives of the Independent Auditor and theConduct of an Audit in Accordance with Australian Auditing Standards and ASA 220 Quality Control foran Audit of a Financial Report and Other Historical Financial Information (or equivalent predecessorASAs).


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1. Scope and application

1.1 Accounting Professional & Ethical Standards Board Limited (APESB) issues professionalstandard APES 320 Quality Control for Firms (the Standard). Systems of quality control incompliance with this Standard are required to be established by 01 January 2010. Earlieradoption of this Standard is permitted.

1.2 APES 320 sets the standards for Members in Public Practice and Firms to establish and maintaina system of quality control at the Firm level in the provision of quality and ethical ProfessionalServices. The mandatory requirements of this Standard are in bold type, preceded or followed bydiscussion or explanation in grey type. APES 320 should be read in conjunction with otherprofessional duties of Members, and any legal obligations that may apply.

1.3 Members in Public Practice in Australia shall follow the mandatory requirements of APES320.

1.4 Members in Public Practice practising outside of Australia shall follow the provisions ofAPES 320 to the extent to which they are not prevented from so doing by specificrequirements of local laws and/or regulations.

1.5 Members shall be familiar with relevant Professional Standards and guidance notes whenproviding Professional Services. All Members shall comply with the fundamentalprinciples outlined in the Code.

1.6 The Standard is not intended to detract from any responsibilities which may be imposed by law orregulation.

1.7 All references to Professional Standards, guidance notes and legislation are references to thoseprovisions as amended from time to time.

1.8 In applying the requirements outlined in APES 320, Members in Public Practice should be guidednot merely by the words but also by the spirit of the Standard and the Code.

1.9 In this Standard, Firms that have an Assurance Practice are required to apply the whole of APES320 as applicable to their Assurance Practice and Assurance Engagements. Firms that do nothave an Assurance Practice, or the non-assurance parts of Firms with an Assurance Practice, arerequired to apply all paragraphs of APES 320 where applicable other than those boxed anddesignated Assurance Practices only. The application requirements are summarised in the flowchart in the Appendix to the Standard.

1.10 A Firms Personnel may be required to comply with additional standards and guidance regardingquality control procedures at the Engagement level. For example in respect of AssuranceEngagements, Auditing Standard ASA 220 Quality Control for an Audit of a Financial Report andOther Historical Financial Information (or equivalent predecessor ASA), issued by the Auditingand Assurance Standards Board establishes standards and provides guidance on quality control

procedures for audits at the Engagement level.

2. Definitions

For the purpose of this Standard:

(a) Date of Report means the date selected by a Member in Public Practice to date a report.

(b) Engagement Documentationmeans the record of work performed, results obtained, andconclusions the Member in Public Practice reached (terms such as working papers orworkpapers are sometimes used).


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(c) Engagement Quality Control Reviewmeans a process designed to provide an objectiveevaluation, on or before the Date of Report, of the significant judgments the EngagementTeam made and the conclusions it reached in formulating the report. The EngagementQuality Control Review process is for audits of financial statements of listed entities, andthose other Engagements, if any, for which the Firm has determined an EngagementQuality Control Review is required.

(d) Engagement Quality Control Reviewer means a Partner, other person in the AssurancePractice, Suitably Qualified External Person, or a team made up of such individuals, noneof whom is part of the Engagement Team, with sufficient and appropriate experience andauthority to objectively evaluate the significant judgments the Engagement Team madeand the conclusions it reached in formulating the report.

(e) Engagement Teammeans all Personnel performing the Engagement, and any individualsengaged by the Firm or a Network Firm who perform procedures on the Engagement.This excludes external experts engaged by the Firm or Network Firm.

(f) Firmmeans:

A sole practitioner, partnership, corporation or other entity of professional

accountants; An entity that controls such parties through ownership, management or other means;

An entity controlled by such parties through ownership, management or other means;or

An Auditor-Generals office or department.

(g) Inspectionmeans in relation to completed Engagements, procedures designed to provideevidence of compliance by Engagement Teams with the Firms quality control policies andprocedures.

(h) Listed Entity means an entity whose shares, stock or debt are quoted or listed on arecognised stock exchange, or are marketed under the regulations of a recognised stockexchange or other equivalent body.

(i) Monitoringmeans a process comprising an ongoing consideration and evaluation of theFirms system of quality control, including a periodic Inspection of a selection of completedEngagements, designed to provide the Firm with Reasonable Assurance that its system ofquality control is operating effectively.

(j) Network Firm or Network Assurance Practice means a Firm, practice or entity thatbelongs to a Network.

(k) Network means a larger structure:(i) that is aimed at cooperation; and(ii) that is clearly aimed at profit or cost-sharing or shares common ownership, control

or management, common quality control policies and procedures, common

business strategy, the use of a common brand name, or a significant part ofprofessional resources.

(l) Partner means any individual with authority to bind the Firm with respect to theperformance of a Professional Services Engagement.

(m) Personnelmeans Partners and Staff.

(n) Reasonable Assurance means in the context of this Standard, a high, but not absolute,level of assurance.

(o) Relevant Ethical Requirements means ethical requirements which the EngagementTeam and Engagement Quality Control Reviewer are subject to, and which ordinarily

comprise Parts A and B of the Code.

(p) Staff means professionals, other than Partners, including any experts the Firm employs.


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(q) Suitably Qualified External Person means an individual outside the Firm with thecompetence and capabilities to act as an Engagement Partner, for example a Partner ofanother Firm, or an employee (with appropriate experience) of either a professionalaccountancy body whose members may perform audits and reviews of historical financialinformation, or other assurance or related services Engagements, or of an organisationthat provides relevant quality control services.

AUST 2.1

For the purpose of this Standard:

(a) Assurance Engagementmeans an Engagement in which a conclusion is expressed by aMember in Public Practice designed to enhance the degree of confidence of the intendedusers other than the responsible party about the outcome of the evaluation ormeasurement of a subject matter against criteria.This includes an Engagement in accordance with Framework for Assurance Engagementsissued by Auditing and Assurance Standards Board (AUASB) or in accordance withspecific relevant standards, such as International Standards on Auditing, for AssuranceEngagements.

(b) Assurance Practicemeans the assurance division or section of a Firm, encompassingevery Assurance Engagement conducted by the Firm, whether or not required to beconducted by a Registered Company Auditor and whether or not conducted by anindividual auditor, an audit Firm or an audit company.

(c) Client means an individual, firm, entity or organisation to whom or to which professionalservices are provided by a Member in Public Practice in respect of Engagements of eithera recurring or demand nature.

(d) Code means APES 110 Code of Ethics for Professional Accountants.

(e) Engagement means an agreement, whether written or otherwise, between a Member inPublic Practice and a Client relating to the provision of Professional Services by a

Member in Public Practice. However, consultations with a prospective Client prior to suchan agreement are not part of an Engagement.

(f) Engagement Partnermeans the Partner or other person in the Firm who is responsiblefor the Engagement and its performance, and for the report that is issued on behalf of theFirm, and who, where required, has the appropriate authority from a professional, legal orregulatory body.

In public sector audit organisations, the term includes a suitably qualified person to whomthe Auditor General has delegated Engagement Partner responsibilities.

(g) Independence means:

Independence of mind the state of mind that permits the provision of an opinion

without being affected by influences that compromise professional judgment, allowingan individual to act with integrity, and exercise objectivity and professional scepticism;and

Independence in appearance the avoidance of facts and circumstances that are sosignificant a reasonable and informed third party, having knowledge of all relevantinformation, including any safeguards applied, would reasonably conclude a Firms, ora member of the Engagement Teams, integrity, objectivity or professional scepticismhad been compromised.

(h) Key Audit Partner means the Engagement Partner, the individual responsible for theEngagement Quality Control Review, and other audit Partners, if any, on the EngagementTeam who make key decisions or judgments on significant matters with respect to theaudit of the financial statements on which the Firm will express an opinion. Depending

upon the circumstances and the role of the individuals on the audit, other audit Partnersmay include, for example, audit Partners responsible for significant subsidiaries ordivisions.


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(i) Professional Body(ies) means the Institute of Chartered Accountants in Australia, CPAAustralia and the National Institute of Accountants.

(j) Professional Services means services requiring accountancy or related skills performedby a Member in Public Practice including accounting, auditing, taxation, managementconsulting and financial management services.

(k) Professional Standardsmeans all standards issued by the Accounting Professional &Ethical Standards Board and all professional and ethical requirements of the applicableProfessional Body.

(l) Member means a member of a Professional Body that has adopted this Standard asapplicable to their membership as defined by that Professional Body.

(m) Member in Public Practice means a Member, irrespective of functional classification(e.g. audit, tax, or consulting) in a Firm that provides Professional Services. The term isalso used to refer to a Firm of Members in Public Practice and means a practice entity asdefined by the applicable Professional Body.

Objective3. A Firm shall establish and maintain a system of quality control designed to provide it with

Reasonable Assurance that the Firm and its Personnel comply with ProfessionalStandards and applicable legal and regulatory requirements and that reports issued bythe Firm or Engagement Partners are appropriate in the circumstances.

4. A system of quality control consists of policies designed to achieve the objectives set out inparagraph 3 and the procedures necessary to implement and monitor compliance with thosepolicies.

5. The nature and extent of the policies and procedures developed by an individual Firm to complywith this Standard will depend on various factors such as the size and operating characteristics

of the Firm, and whether it is part of a Network.

AUST 5.1 The policies and procedures developed by a Firm need not be complex or time-consuming tobe effective. This Standard describes responsibilities for several different roles and functionswithin the Firm, including overall quality control and Monitoring. For a small Firm, it may benecessary for one person to perform more than one of these functions. In somecircumstances, it may be appropriate to use the services of a Suitably Qualified ExternalPerson. When a Firm decides to use such a person, care should be taken to establish thelegal responsibilities of the parties and to safeguard Client confidentiality.

Applying and complying with relevant requirements

6. Personnel within a Firm responsible for establishing and maintaining the Firms system ofquality control shall have an understanding of the entire text of this Standard, includingits application and other explanatory material, to understand its objective and to apply itsrequirements properly.

7. A Firm shall comply with each requirement of this Standard unless, in the circumstancesof the Firm, the requirement is not relevant to the services provided by the Firm.

Considerations specific to smaller Firms

8. This Standard does not call for compliance with requirements that are not relevant, for example,in the circumstances of a sole practitioner with no Staff. Requirements in this Standard such as

those for policies and procedures for the assignment of appropriate Personnel to theEngagement Team (see paragraph 56), for review responsibilities (see paragraph 63), and forannual communication of the results of Monitoring to Engagement Partners within a Firm (seeparagraph 117), are not relevant in the absence of Staff.


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9. The requirements are designed to enable a Firm to achieve the objective stated in thisStandard. The proper application of the requirements is therefore expected to provide asufficient basis for the achievement of the objective. However, because circumstancesvary widely and all such circumstances cannot be anticipated, the Firm shall considerwhether there are particular matters or circumstances that require the Firm to establishpolicies and procedures in addition to those required by this Standard to meet the statedobjective.

Elements of a system of quality control

10. A Firm shall establish and maintain a system of quality control that includes policies andprocedures that address each of the following elements:(a) Leadership responsibilities for quality within the Firm.(b) Relevant Ethical Requirements.(c) Acceptance and continuance of Client relationships and specific Engagements.(d) Human resources.(e) Engagement performance.(f) Monitoring.

11. A Firm shall document its policies and procedures and communicate them to the FirmsPersonnel.

12. In general, communication of quality control policies and procedures to Firms Personnelincludes a description of the quality control policies and procedures and the objectives they aredesigned to achieve, and the message that each individual has a personal responsibility forquality and is expected to comply with these policies and procedures. Encouraging FirmsPersonnel to communicate their views or concerns on quality control matters recognises theimportance of obtaining feedback on the Firms system of quality control.


13. Documentation and communication of policies and procedures for smaller Firms may be less

formal and extensive than for larger Firms.

Leadership responsibilities for quality within a Firm

14. A Firm shall establish policies and procedures designed to promote an internal culturerecognising that quality is essential in performing Engagements. Such policies andprocedures shall require the Firms chief executive officer (or equivalent) or, ifappropriate, the Firms managing board of Partners (or equivalent), to assume ultimateresponsibility for the Firms system of quality control.

15. The Firms leadership and the examples it sets significantly influence the internal culture of the

Firm. The promotion of a quality-oriented internal culture depends on clear, consistent andfrequent actions and messages from all levels of the Firms management that emphasise theFirms quality control policies and procedures, and the requirement to:(a) Perform work that complies with Professional Standards and applicable legal and

regulatory requirements; and(b) Issue reports that are appropriate in the circumstances.

Such actions and messages encourage a culture that recognises and rewards high quality work.These actions and messages may be communicated by, but are not limited to, training seminars,meetings, formal or informal dialogue, mission statements, newsletters, or briefing memoranda.They may be incorporated in the Firms internal documentation and training materials, and inPartner and Staff appraisal procedures such that they will support and reinforce the Firms viewon the importance of quality and how, practically, it is to be achieved.


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16. Of particular importance in promoting an internal culture based on quality is the need for a Firmsleadership to recognise that the Firms business strategy is subject to the overriding requirementfor the Firm to achieve quality in all the Engagements that the Firm performs. Promoting such aninternal culture includes:(a) Establishment of policies and procedures that address performance evaluation,

compensation, and promotion (including incentive systems) with regard to its Personnel, inorder to demonstrate the Firms overriding commitment to quality;

(b) Assignment of management responsibilities so that commercial considerations do notoverride the quality of work performed; and

(c) Provision of sufficient resources for the development, documentation and support of itsquality control policies and procedures.

17. A Firm shall establish policies and procedures such that any person or persons assignedoperational responsibility for the Firms system of quality control by the Firms chiefexecutive officer or managing board of Partners has sufficient and appropriate experienceand ability, and the necessary authority, to assume that responsibility.

18. Sufficient and appropriate experience and ability enables the person or persons responsible forthe Firms system of quality control to identify and understand quality control issues and to

develop appropriate policies and procedures. Necessary authority enables the person or personsto implement those policies and procedures.

Relevant Ethical Requirements

19. A Firm shall establish policies and procedures designed to provide it with ReasonableAssurance that the Firm and its Personnel comply with Relevant Ethical Requirements.

20. Ethical requirements are contained in the Professional Standards. The Code establishes thefundamental principles of professional ethics, which include:(a) Integrity;(b) Objectivity;(c) Professional competence and due care;

(d) Confidentiality; and(e) Professional behaviour.

21. Part B of the Code illustrates how the conceptual framework is to be applied in specificsituations. It provides examples of safeguards that may be appropriate to address threats tocompliance with the fundamental principles and also provides examples of situations wheresafeguards are not available to address the threats.

22. The fundamental principles are reinforced in particular by:

The leadership of the Firm;

Education and training;

Monitoring; and A process for dealing with non-compliance.

23. In complying with the requirements in paragraphs 19, 2426, 29 and 31, the definitions of Firm,Network and Network Firms used in the Relevant Ethical Requirements apply in so far as isnecessary to interpret those ethical requirements.

Independence

24. A Firm shall establish policies and procedures designed to provide it with ReasonableAssurance that the Firm, its Personnel and, where applicable, others subject toIndependence requirements (including Network Firms Personnel) maintain Independencewhere required by Relevant Ethical Requirements. Such policies and procedures shallenable the Firm to:(a) Communicate its Independence requirements to its Personnel and, where applicable,

others subject to them; and


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(b) Identify and evaluate circumstances and relationships that create threats toIndependence, and to take appropriate action to eliminate those threats or reducethem to an acceptable level by applying safeguards, or, if considered appropriate, towithdraw from the Engagement, where withdrawal is possible under applicable law orregulation.

Assurance Practices only

25. A Firm shall establish policies and procedures that require:(a) Engagement Partners to provide the Firm with relevant information about Client

Engagements, including the scope of services, to enable the Firm to evaluate theoverall impact, if any, on Independence requirements;

(b) Personnel to promptly notify the Firm of circumstances and relationships that create athreat to Independence so that appropriate action can be taken; and

(c) The accumulation and communication of relevant information to appropriatePersonnel so that:(i) the Firm and its Personnel can readily determine whether they satisfy

Independence requirements;(ii) the Firm can maintain and update its records relating to Independence; and(iii) the Firm can take appropriate action regarding identified threats to Independence

that are not at an acceptable level.

26. A Firm shall establish policies and procedures designed to provide it with ReasonableAssurance that it is notified of breaches of Independence requirements, and to enable it totake appropriate actions to resolve such situations. The policies and procedures shallinclude requirements for:(a) Personnel to promptly notify the Firm of Independence breaches of which they

become aware;(b) The Firm to promptly communicate identified breaches of these policies and

procedures to:(i) The Engagement Partner who, with the Firm, needs to address the breach; and(ii) Other relevant Personnel in the Firm and, where appropriate, the Network, and

those subject to the Independence requirements who need to take appropriate

action; and(c) Prompt communication to the Firm, if necessary, by the Engagement Partner and theother individuals referred to in subparagraph (b)(ii) of the actions taken to resolve thematter, so that the Firm can determine whether it should take further action.

AUST 27. Guidance on threats to Independence and safeguards, including application to specific situations,is set out in the Code. The Code also requires threats to Independence that are not clearlyinsignificant to be documented and include a description of the threats identified and thesafeguards applied to eliminate or reduce the threats to an acceptable level.

AUST 28. A Firm receiving notice of a breach of Independence policies and procedures should promptlycommunicate relevant information to Engagement Partners, others in the Firm as appropriateand, where applicable, experts contracted by the Firm and Network Firm Personnel, for

appropriate action. Appropriate action by the Firm and the relevant Engagement Partner shouldinclude applying appropriate safeguards to eliminate the threats to Independence or to reducethem to an acceptable level, or withdrawing from the Engagement.

29. At least annually, a Firm shall obtain written confirmation of compliance with its policiesand procedures on Independence from all Firm Personnel required to be independent byRelevant Ethical Requirements.

30. Written confirmation may be in paper or electronic form. By obtaining confirmation and takingappropriate action on information indicating non-compliance, the Firm demonstrates the importancethat it attaches to Independence and makes the issue current for, and visible to, its Personnel.

31. A Firm shall establish policies and procedures:

(a) Setting out criteria for determining the need for safeguards to reduce the familiaritythreat to an acceptable level when using the same senior Personnel on an AssuranceEngagement over a long period of time; and


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(b) Requiring, for audits of financial statements of Listed Entities, the rotation of theEngagement Partner and the individuals responsible for Engagement Quality ControlReview, and where applicable, others subject to rotation requirements, after a specifiedperiod in compliance with Relevant Ethical Requirements.

32. The Code discusses the familiarity threat that may be created by using the same senior Personnelon an Assurance Engagement over a long period of time and the safeguards that might be

appropriate to address such threats.

33. Determining appropriate criteria to address familiarity threats may include matters such as:(a) the nature of the Engagement, including the extent to which it involves a matter of public

interest; and(b) the length of service of the senior Personnel on the Engagement.

Examples of safeguards include rotating the senior Personnel or requiring an Engagement QualityControl Review.

34. The Code recognises that the familiarity threat is particularly relevant in the context of financialstatement audits of Listed Entities. For these audits, the Code requires the rotation of Key AuditPartners after a pre-defined period, normally no more than five years, and provides related

standards and guidance.

Considerations specific to public sector organisations

35. Statutory measures may provide safeguards for the Independence of public sector auditors.However, threats to Independence may still exist regardless of any statutory measures designed toprotect their Independence. Therefore, in establishing the policies and procedures required byparagraphs 19, 2426, 29 and 31, public sector auditors should have regard to the public sectormandate and address any threats to Independence in that context.

36. Listed entities as referred to in paragraphs 31 and 34 are not common in the public sector.However, there may be other public sector entities that are significant due to size, complexity orpublic interest aspects, and which consequently have a wide range of stakeholders. Therefore,

there may be instances when a Firm determines, based on its quality control policies andprocedures, that a public sector entity is significant for the purposes of expanded quality controlprocedures.

37. In the public sector, legislation may establish the appointments and terms of office of the auditorwith Engagement Partner responsibility. As a result, it may not be possible to comply strictly withthe Engagement Partner rotation requirements envisaged for listed entities. Nonetheless, for publicsector entities considered significant, as noted in paragraph 36, it may be in the public interest forpublic sector audit organisations to establish policies and procedures to promote compliance withthe spirit of rotation of Engagement Partner responsibility.

Acceptance and continuance of Client relationships and specific Engagements38. A Firm shall establish policies and procedures for the acceptance and continuance of

Client relationships and specific Engagements, designed to provide the Firm withReasonable Assurance that it will only undertake or continue relationships andEngagements where the Firm:

(a) Is competent to perform the Engagement and has the capabilities, including timeand resources, to do so;

(b) Can comply with Relevant Ethical Requirements; and

(c) Has considered the integrity of the Client and does not have information that wouldlead it to conclude that the Client lacks integrity.


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39. Consideration of whether the Firm has the competence, capabilities and resources to undertakea new Engagement from a new or an existing Client involves reviewing the specific requirementsof the Engagement and the existing Partner and Staff profiles at all relevant levels, and includingwhether:

Firms Personnel have knowledge of relevant industries or subject matters;

Firms Personnel have experience with relevant regulatory or reporting requirements, or the

ability to gain the necessary skills and knowledge effectively; The Firm has sufficient Personnel with the necessary competence and capabilities;

Experts are available, if needed;

Individuals meeting the criteria and eligibility requirements to perform Engagement QualityControl Review are available, where applicable; and

The Firm is able to complete the Engagement within the reporting deadline.

40. With regard to the integrity of a Client, matters to consider include, for example:

The identity and business reputation of the Clients principal owners, key management,related parties and those charged with its governance.

The nature of the Clients operations, including its business practices. Information concerning the attitude of the Clients principal owners, key management and

those charged with its governance towards such matters as aggressive interpretation ofaccounting standards and the internal control environment.

Whether the Client is aggressively concerned with maintaining the Firms fees as low aspossible.

Indications of an inappropriate limitation in the scope of work.

Indications that the Client might be involved in money laundering or other criminal activities.

The reasons for the proposed appointment of the Firm and non-reappointment of theprevious Firm.

The identity and business reputation of related parties.

The extent of knowledge a Firm will have regarding the integrity of a Client will generally growwithin the context of an ongoing relationship with that Client.

41. Sources of information on such matters obtained by the Firm may include the following:

Communications with existing or previous providers of professional accountancy servicesto the Client in accordance with Relevant Ethical Requirements, and discussions with otherthird parties.

Inquiry of other Firms Personnel or third parties such as bankers, legal counsel andindustry peers.

Background searches of relevant databases.

42. A Firm shall establish policies and procedures that require:

(a) The Firm to obtain such information as it considers necessary in the circumstancesbefore accepting an Engagement with a new Client, when deciding whether tocontinue an existing Engagement, and when considering acceptance of a newEngagement with an existing Client.

(b) If a potential conflict of interest is identified prior to accepting an Engagement from anew or an existing Client or during the conduct of an Engagement, the Firm todetermine whether it is appropriate to accept or continue the Engagement.

(c) If issues have been identified, and the Firm decides to accept or continue the Clientrelationship or a specific Engagement, the Firm to document how the issues were

resolved.


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43. Deciding whether to continue a Client relationship includes consideration of significant mattersthat have arisen during the current or previous Engagements, and their implications forcontinuing the relationship. For example, a Client may have started to expand its businessoperations into an area where the Firm does not possess the necessary expertise.

44. A Firm shall establish policies and procedures on continuing an Engagement and theClient relationship, addressing the circumstances where the Firm obtains information thatwould have caused it to decline the Engagement had that information been availableearlier. Such policies and procedures shall include consideration of:

(a) The professional and legal responsibilities that apply to the circumstances,including whether there is a requirement for the Firm to report to the person orpersons who made the appointment or, in some cases, to regulatory authorities; and

(b) The possibility of withdrawing from the Engagement or from both the Engagementand the Client relationship.

45. Policies and procedures on withdrawal from an Engagement or from both the Engagement and theClient relationship should address issues that include the following:

Discussing with the appropriate level of the Clients management and those charged with itsgovernance the appropriate action that the Firm might take based on the relevant facts and

circumstances.

If the Firm determines that it is appropriate to withdraw, discussing with the appropriate levelof the Clients management and those charged with its governance withdrawal from theEngagement or from both the Engagement and the Client relationship, and the reasons forthe withdrawal.

Considering whether there is a professional, legal or regulatory requirement for the Firm toremain in place, or for the Firm to report the withdrawal from the Engagement, or from boththe Engagement and the Client relationship, together with the reasons for the withdrawal, toregulatory authorities.

Documenting significant matters, consultations, conclusions and the basis for theconclusions.

Consideration specific to public sector audit organisations

46. In the public sector, auditors may be appointed in accordance with statutory procedures.Accordingly, certain of the requirements and considerations regarding the acceptance andcontinuance of Client relationships and specific Engagements as set out in paragraphs 38-45 maynot be relevant. Nonetheless, establishing policies and procedures as described may providevaluable information to public sector auditors in performing risk assessments and in carrying outreporting responsibilities.

Human resources

47. A Firm shall establish policies and procedures designed to provide it with ReasonableAssurance that it has sufficient Personnel with the competence, capabilities andcommitment to ethical principles necessary to:

(a) Perform Engagements in accordance with Professional Standards and applicablelegal and regulatory requirements; and

(b) Enable the Firm or Engagement Partners to issue reports that are appropriate in thecircumstances.

48. Personnel issues relevant to a Firms policies and procedures related to human resourcesinclude, for example: Recruitment. Performance evaluation.

Capabilities, including time to perform assignments. Competence. Career development. Promotion.


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Compensation. The estimation of Personnel needs.

Effective recruitment processes and procedures help the Firm select individuals of integrity whohave the capacity to develop the competence and capabilities necessary to perform the Firmswork and possess the appropriate characteristics to enable them to perform competently.

49. Competence can be developed through a variety of methods, including the following: Professional education. Continuing professional development, including training. Work experience. Coaching by more experienced Staff, for example, other members of the Engagement

Team. Independence education for Personnel who are required to be independent.

50. The continuing competence of a Firms Personnel depends to a significant extent on anappropriate level of continuing professional development so that Personnel maintain theirknowledge and capabilities. Effective policies and procedures should emphasise the need forcontinuing training for all levels of the Firms Personnel, and should provide the necessarytraining resources and assistance to enable Personnel to develop and maintain the required

competence and capabilities.

51. A Firm may use a Suitably Qualified External Person, for example, when internal technical andtraining resources are unavailable.

52. Performance evaluation, compensation and promotion procedures give due recognition andreward to the development and maintenance of competence and commitment to ethicalprinciples. Steps a Firm may take in developing and maintaining competence and commitment toethical principles include:(a) Making Personnel aware of the Firms expectations regarding performance and ethical

principles;(b) Providing Personnel with evaluation of, and counseling on, performance, progress and

career development; and

(c) Helping Personnel understand that advancement to positions of greater responsibilitydepends, among other things, upon performance quality and adherence to ethicalprinciples, and that failure to comply with the Firms policies and procedures may result indisciplinary action.


53. The size and circumstances of a Firm will influence the structure of the Firms performanceevaluation process. Smaller Firms, in particular, may employ less formal methods of evaluatingthe performance of their Personnel.

Assignment of Engagement Teams

54. A Firm shall assign responsibility for each Engagement to an Engagement Partner andshall establish policies and procedures requiring that:(a) The identity and role of the Engagement Partner are communicated to key members

of Client management and those charged with governance;(b) The Engagement Partner has the appropriate competence, capabilities and authority

to perform the role; and(c) The responsibilities of the Engagement Partner are clearly defined and

communicated to that Partner.

55. Policies and procedures may include systems to monitor the workload and availability ofEngagement Partners so as to enable these individuals to have sufficient time to adequatelydischarge their responsibilities.


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56. A Firm shall establish policies and procedures to assign appropriate Personnel with thenecessary competence and capabilities to:

(a) Perform Engagements in accordance with Professional Standards and applicablelegal and regulatory requirements; and

(b) Enable the Firm or Engagement Partners to issue reports that are appropriate in thecircumstances.

57. A Firms assignment of Engagement Teams and the determination of the level of supervisionrequired, include for example, consideration of the Engagement Teams: Understanding of, and practical experience with, Engagements of a similar nature and

complexity through appropriate training and participation; Understanding of Professional Standards and applicable legal and regulatory requirements; Technical knowledge and expertise, including knowledge of relevant information

technology; Knowledge of relevant industries in which the Clients operate; Ability to apply professional judgment; and Understanding of the Firms quality control policies and procedures.

Engagement performance58. A Firm shall establish policies and procedures designed to provide it with Reasonable

Assurance that Engagements are performed in accordance with Professional Standardsand applicable legal and regulatory requirements, and that the Firm or the EngagementPartner issue reports that are appropriate in the circumstances. Such policies andprocedures shall include:

(a) Matters relevant to promoting consistency in the quality of Engagementperformance;

(b) Supervision responsibilities; and

(c) Review responsibilities.

59. A Firm promotes consistency in the quality of Engagement performance through its policies andprocedures. This is often accomplished through written or electronic manuals, software tools orother forms of standardised documentation, and industry or subject matter-specific guidancematerials. Matters addressed may include: How Engagement Teams are briefed on the Engagement to obtain an understanding of the

objectives of their work. Processes for complying with applicable Engagement standards. Processes of Engagement supervision, Staff training and coaching. Methods of reviewing the work performed, the significant judgments made and the form of

report being issued. Appropriate documentation of the work performed and of the timing and extent of the

review. Processes to keep all policies and procedures current.

60. Appropriate teamwork and training assist less experienced members of an Engagement Team toclearly understand the objectives of the assigned work.

61. Engagement supervision includes the following: Tracking the progress of the Engagement; Considering the competence and capabilities of individual members of the Engagement

Team, whether they have sufficient time to carry out their work, whether they understandtheir instructions and whether the work is being carried out in accordance with the plannedapproach to the Engagement;

Addressing significant matters arising during the Engagement, considering theirsignificance and modifying the planned approach appropriately; and

Identifying matters for consultation or consideration by more experienced EngagementTeam members during the Engagement.


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62. A review consists of consideration of whether:(a) The work has been performed in accordance with Professional Standards and applicable

legal and regulatory requirements;(b) Significant matters have been raised for further consideration;(c) Appropriate consultations have taken place and the resulting conclusions have been

documented and implemented;(d) There is a need to revise the nature, timing and extent of work performed;(e) The work performed supports the conclusions reached and is appropriately documented;(f) The evidence obtained is sufficient and appropriate to support the report; and(g) The objectives of the Engagement procedures have been achieved.

63. A Firms review responsibility policies and procedures shall be determined on the basisthat work of less experienced team members is reviewed by more experiencedEngagement Team members.

Consultation

64. A Firm shall establish policies and procedures designed to provide it with ReasonableAssurance that:(a) Appropriate consultation takes place on difficult or contentious matters;

(b) Sufficient resources are available to enable appropriate consultation to take place;Assurance Practices only

(c) The nature and scope of, and conclusions arising from, such consultations aredocumented and agreed by both the individual seeking consultation and theindividual consulted; and

(d) Conclusions resulting from consultations are implemented.

65. Consultation includes discussion at the appropriate professional level, with individuals within oroutside the Firm who have specialised expertise.

66. Consultation uses appropriate research resources as well as the collective experience andtechnical expertise of the Firm. Consultation helps to promote quality and improves the

application of professional judgment. Appropriate recognition of consultation in the Firmspolicies and procedures helps to promote a culture in which consultation is recognised as astrength and encourages Personnel to consult on difficult or contentious matters.

67. Effective consultation on significant technical, ethical and other matters within the Firm, or whereapplicable, outside the Firm can only be achieved when those consulted:

Are given all the relevant facts that will enable them to provide informed advice; and

Have appropriate knowledge, seniority and experience,

and when conclusions resulting from consultations are appropriately documented andimplemented.


68. A Firm needing to consult externally, for example, a Firm without appropriate internal resourcesmay take advantage of advisory services provided by:

Other Firms;

Professional and regulatory bodies; or

Commercial organisations that provide relevant quality control services.

Before contracting for such services, consideration of the competence and capabilities of theexternal provider helps the Firm to determine whether the external provider is suitably qualifiedfor that purpose.


69. Documentation of consultations with other professionals that involve difficult or contentious mattersthat is sufficiently complete and detailed contributes to an understanding of:


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(a) The issue on which consultation was sought; and(b) The results of the consultation, including any decisions taken, the basis for those decisions

and how they were implemented.

Engagement Quality Control Review

70. A Firm shall establish policies and procedures requiring, for appropriate Engagements, an

Engagement Quality Control Review that provides an objective evaluation of the significantjudgments made by the Engagement Team and the conclusions reached in formulating thereport. Such policies and procedures shall:

(a) Require an Engagement Quality Control Review for all audits of financial statements ofListed Entities;

(b) Set out criteria against which all other audits and reviews of historical financialinformation, and other assurance and related services Engagements shall be evaluatedto determine whether an Engagement Quality Control Review should be performed; and

(c) Require an Engagement Quality Control Review for all Engagements, if any, meeting thecriteria established in compliance with subparagraph 70(b).

71. Criteria for determining which Engagements other than audits of financial statements of Listed

Entities are to be subject to an Engagement Quality Control Review may include, for example:

The nature of the Engagement, including the extent to which it involves a matter of publicinterest.

The identification of unusual circumstances or risks in an Engagement or class ofEngagements.

Whether laws or regulations require an Engagement Quality Control Review.

Nature, timing and extent of the Engagement Quality Control Review

72. A Firm shall establish policies and procedures setting out the nature, timing and extent ofan Engagement Quality Control Review. Such policies and procedures shall require that the

Engagement report not be dated until the completion of the Engagement Quality ControlReview.

73. A Firm shall establish policies and procedures to require the Engagement Quality ControlReview to include:

(a) Discussion of significant matters with the Engagement Partner;

(b) Review of the financial statements or other subject matter information and theproposed report;

(c) Review of selected Engagement Documentation relating to significant judgements theEngagement Team made and the conclusions it reached; and

(d) Evaluation of the conclusions reached in formulating the report and consideration of

whether the proposed report is appropriate.

74. An Engagement report is not dated until the completion of the Engagement Quality Control Review.However, documentation of the Engagement Quality Control Review may be completed after theDate of Report.

75. Conducting the Engagement Quality Control Review in a timely manner at appropriate stagesduring the Engagement allows significant matters to be promptly resolved to the EngagementQuality Control Reviewers satisfaction on or before the Date of Report.

76. The extent of the Engagement Quality Control Review may depend, among other things, on thecomplexity of the Engagement, whether the entity is a Listed Entity, and the risk that the reportmight not be appropriate in the circumstances. The performance of an Engagement Quality Control

Review does not reduce the responsibilities of the Engagement Partner.


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77. For audits of financial statements of Listed Entities, a Firm shall establish policies andprocedures to require the Engagement Quality Control Review to include consideration ofthe following:

(a) The Engagement Teams evaluation of the Firms Independence in relation to thespecific Engagement;

(b) Whether appropriate consultation has taken place on matters involving differences of

opinion or other difficult or contentious matters, and the conclusions arising fromthose consultations; and

(c) Whether documentation selected for review reflects the work performed in relation tosignificant judgements and supports the conclusions reached.

78. Other matters relevant to evaluating the significant judgements made by the Engagement Teamthat may be considered in an Engagement Quality Control Review of an audit of financialstatements of a Listed Entity include:

Significant risks identified during the Engagement and the responses to those risks.

Judgments made, particularly with respect to materiality and significant risks.

The significance and disposition of corrected and uncorrected misstatements identified during

the Engagement. The matters to be communicated to management and those charged with governance and,

where applicable, other parties such as regulatory bodies.

These other matters, depending of the circumstances, may also be applicable for EngagementQuality Control Reviews for audits of financial statements of other entities as well as reviews offinancial statements and other assurance and related services Engagements.

Considerations specific to public sector audit organisations

79. Although not referred to as Listed Entities, as described in paragraph 36, certain public sectorentities may be of sufficient significance to warrant performance of an Engagement Quality ControlReview.

Criteria for the eligibility of Engagement Quality Control Reviewers

80. A Firm shall establish policies and procedures to address the appointment of EngagementQuality Control Reviewers and establish their eligibility through:

(a) The technical qualifications required to perform the role, including the necessaryexperience and authority; and

(b) The degree to which an Engagement Quality Control Reviewer can be consulted on theEngagement without compromising the reviewers objectivity.

81. What constitutes sufficient and appropriate technical expertise, experience and authority dependson the circumstances of the Assurance Engagement. For example, the Engagement QualityControl Reviewer for an audit of the financial statements of a Listed Entity is likely to be anindividual with sufficient and appropriate experience and authority to act as an audit EngagementPartner on audits of financial statements of Listed Entities.

82. The Engagement Partner may consult the Engagement Quality Control Reviewer during theEngagement, for example, to establish that a judgment made by the Engagement Partner will beacceptable to the Engagement Quality Control Reviewer. Such consultation avoids identification ofdifferences of opinion at a late stage of the Engagement and need not compromise theEngagement Quality Control Reviewers eligibility to perform the role. Where the nature and extentof the consultations become significant the reviewers objectivity may be compromised unless careis taken by both the Engagement Team and the reviewer to maintain the reviewers objectivity.Where this is not possible, another individual within the Firm or a Suitably Qualified External

Person should be appointed to take on the role of either the Engagement Quality Control Revieweror the person to be consulted on the Engagement.


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83. A Firm shall establish policies and procedures designed to maintain the objectivity of theEngagement Quality Control Reviewer.

84. Such policies and procedures should provide that the Engagement Quality Control Reviewer:(a) Where practicable, is not selected by the Engagement Partner;(b) Does not otherwise participate in the Engagement during the period of review;(c) Does not make decisions for the Engagement Team; and

(d) Is not subject to other considerations that would threaten the reviewers objectivity.


85. It may not be practicable, in the case of Firms with few Partners, for the Engagement Partner not tobe involved in selecting the Engagement Quality Control Reviewer. Suitably Qualified ExternalPersons may be contracted where sole practitioners or small Firms identify Engagements requiringEngagement Quality Control Reviews. Alternatively, some sole practitioners or small Firms maywish to use other Firms to facilitate Engagement Quality Control Reviews. Where a Firm contractsSuitably Qualified External Persons, the Firm should follow the requirements and guidance inparagraphs 80-83 and 87.

Considerations specific to public sector audit organisations

86. In the public sector, a statutorily appointed auditor (for example, an Auditor General, or othersuitably qualified person appointed on behalf of the Auditor General) may act in a role equivalent tothat of Engagement Partner with overall responsibility for public sector audits. In suchcircumstances, where applicable, the selection of the Engagement Quality Control Reviewer shouldinclude consideration of the need for Independence from the audited entity and the ability of theEngagement Quality Control Reviewer to provide an objective evaluation.

87. A Firms policies and procedures shall provide for the replacement of the EngagementQuality Control Reviewer where the reviewers ability to perform an objective review may beimpaired.

Documentation of the Engagement Quality Control Review

88. A Firm shall establish policies and procedures on documentation of the EngagementQuality Control Review which require documentation that:

(a) The procedures required by the Firms policies on Engagement Quality Control Reviewhave been performed;

(b) The Engagement Quality Control Review has been completed on or before the Date ofReport; and

(c) The reviewer is not aware of any unresolved matters that would cause the reviewer tobelieve that the significant judgments the Engagement Team made and the conclusionsit reached were not appropriate.

Differences of opinion

89. A Firm shall establish policies and procedures for dealing with and resolving differences ofopinion within the Engagement Team, with those consulted and, where applicable, betweenthe Engagement Partner and the Engagement Quality Control Reviewer.

90. Such policies and procedures shall require that:

(a) Conclusions reached be documented and implemented; and

(b) The report not be dated until the matter is resolved.

91. Effective procedures encourage identification of differences of opinion at an early stage, provideclear guidelines as to the successive steps to be taken thereafter, and require documentationregarding the resolution of the differences and the implementation of the conclusions reached.

92. Procedures to resolve such differences may include consulting with another practitioner or Firm, ora professional or regulatory body.


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Engagement Documentation

Completion of the assembly of final Engagement files

93. A Firm shall establish policies and procedures for Engagement Teams to complete theassembly of final Engagement files on a timely basis after the Engagement reports havebeen finalised.

94. Law or regulation may prescribe the time limits by which the assembly of final Engagement filesfor specific types of Engagement is to be completed. Where no such time limits are prescribed inlaw or regulation, paragraph 93 requires the Firm to establish time limits that reflect the need tocomplete the assembly of final Engagement files on a timely basis. In the case of an audit, forexample, such a time limit would ordinarily not be more than 60 days after the date of theauditors report.

95. Where two or more different reports are issued in respect of the same subject matter informationof an entity, a Firms policies and procedures relating to time limits for the assembly of finalEngagement files address each report as if it were for a separate Engagement. This may, forexample, be the case when the Firm issues an auditors report on a components financial

information for group consolidation purposes and, at a subsequent date, an auditors report onthe same financial information for statutory purposes.

Confidentiality, safe custody, integrity, accessibility and retrievability of Engagement Documentation

96. A Firm shall establish policies and procedures designed to maintain the confidentiality,safe custody, integrity, accessibility and retrievability of Engagement Documentation.

97. Relevant Ethical Requirements establish an obligation for the Firms Personnel to observe at alltimes the confidentiality of information contained in Engagement Documentation, unless specificClient authority has been given to disclose information, or there is a legal duty to do so. Specificlaws or regulations may impose additional obligations on the Firms Personnel to maintain Clientconfidentiality, particularly where data of a personal nature are concerned.

98. Whether Engagement Documentation is in paper, electronic or other media, the integrity,accessibility or retrievability of the underlying data may be compromised if the documentationcould be altered, added to or deleted without the Firms knowledge, or if it could be permanentlylost or damaged. Accordingly, controls that the Firm designs and implements to avoidunauthorised alteration or loss of Engagement Documentation may include those that:

Enable the determination of when and by whom Engagement Documentation was created,changed or reviewed;

Protect the integrity of the information at all stages of the Engagement, especially when theinformation is shared within the Engagement Team or transmitted to other parties via theInternet;

Prevent unauthorised changes to the Engagement Documentation; and

Allow access to the Engagement Documentation by the Engagement Team and otherauthorised parties as necessary to properly discharge their responsibilities.

99. Controls that the Firm designs and implements to maintain the confidentiality, safe custody,integrity, accessibility and retrievability of Engagement Documentation may include the following:

The use of a password among Engagement Team members to restrict access to electronicEngagement Documentation to authorised users.

Appropriate back-up routines for electronic Engagement Documentation at appropriatestages during the Engagement.

Procedures for properly distributing Engagement Documentation to the team members at the

start of Engagement, processing it during Engagement, and collating it at the end ofEngagement.


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Procedures for restricting access to, and enabling proper distribution and confidentialstorage of, hardcopy Engagement Documentation.

100. For practical reasons, original paper documentation may be electronically scanned for inclusionin Engagement files. In such cases, the Firms procedures designed to maintain the integrity,accessibility, and retrievability of the documentation may include requiring the EngagementTeams to:

Generate scanned copies that reflect the entire content of the original paper documentation,including manual signatures, cross-references and annotations;

Integrate the scanned copies into the Engagement files, including indexing and signing off onthe scanned copies as necessary; and

Enable the scanned copies to be retrieved and printed as necessary.

There may be legal, regulatory or other reasons for a Firm to retain original paper documentationthat has been scanned.

Retention of Engagement Documentation

101. A Firm shall establish policies and procedures for the retention of EngagementDocumentation for a period sufficient to meet the needs of the Firm or as required by lawor regulation.

102. The needs of a Firm for retention of Engagement Documentation, and the period of suchretention, will vary with the nature of the Engagement and the Firms circumstances, forexample, whether the Engagement Documentation is needed to provide a record of matters ofcontinuing significance to future Engagements. The retention period may also depend on otherfactors, such as whether local law or regulation prescribes specific retention periods for certaintypes of Engagements, or whether there are generally accepted retention periods in thejurisdiction in the absence of specific legal or regulatory requirements.

103. In the specific case of audit Engagements, the retention period would ordinarily be no shorterthan seven years from the date of the auditors report, or, if later, the date of the group auditorsreport.

104. Procedures that a Firm adopts for retention of Engagement Documentation include those thatenable the requirements of paragraph 101 to be met during the retention period, for example to:

Enable the retrieval of, and access to, the Engagement Documentation during the retentionperiod, particularly in the case of electronic documentation since the underlying technologymay be upgraded or changed over time;

Provide, where necessary, a record of changes made to Engagement Documentation afterthe Engagement files have been completed; and

Enable authorised external parties to access and review specific EngagementDocumentation for quality control or other purposes.

Ownership of Engagement Documentation

105. Unless otherwise specified by law or regulation, Engagement Documentation is the property of aFirm. The Firm may, at its discretion, make portions of, or extracts from, EngagementDocumentation available to Clients, provided such disclosure does not undermine the validity ofthe work performed, or, in the case of Assurance Engagements, the Independence of the Firm orits Personnel.

Monitoring

Monitoring a Firms quality control policies and procedures

106. A Firm shall establish a Monitoring process designed to provide it with ReasonableAssurance that the policies and procedures relating to the system of quality control arerelevant, adequate, and operating effectively. This process shall:


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(a) Include an ongoing consideration and evaluation of the Firms system of qualitycontrol, including, on a cyclical basis, Inspection of at least one completedEngagement for each Engagement Partner;

(b) Require responsibility for the Monitoring process to be assigned to a Partner orPartners or other persons with sufficient and appropriate experience and authority inthe Firm to assume that responsibility; and

(c) Require that those performing the Engagement or the Engagement Quality ControlReview are not involved in inspecting the Engagements.

107. The purpose of Monitoring compliance with quality control policies and procedures is to providean evaluation of:

Adherence to Professional Standards and applicable legal and regulatory requirements;

Whether the system of quality control has been appropriately designed and effectivelyimplemented; and

Whether the Firms quality control policies and procedures have been appropriately applied,so that reports that are issued by the Firm or Engagement Partners are appropriate in thecircumstances.

108. Ongoing consideration and evaluation of the system of quality control include matters such asthe following:

Analysis of:

New developments in Professional Standards and applicable legal and regulatoryrequirements, and how they are reflected in the Firms policies and procedures whereappropriate;


Written confirmation of compliance with policies and procedures on Independence;

Continuing professional development, including training; and

Decisions related to acceptance and continuance of Client relationships and specificEngagements.

Determination of corrective actions to be taken and improvements to be made in the system,including the provision of feedback into the Firms policies and procedures relating toeducation and training.

Communication to appropriate Firms Personnel of weaknesses identified in the system, inthe level of understanding of the system, or compliance with it.

Follow-up by appropriate Firms Personnel so that necessary modifications are promptlymade to the quality control policies and procedures.

AUST109. In determining the scope of the Inspections, Firms may take into account quality reviews

conducted by the Professional Bodies or regulator.


Inspection cycle policies and procedures may, for example, specify a cycle that spans threeyears. The manner in which the Inspection cycle is organised, including the timing of selectionof individual Engagements, depends on many factors, such as the following:

The size of the Firm.

The number and geographical location of offices.

The results of previous Monitoring procedures.

The degree of authority both Personnel and offices have (for example, whether individual

offices are authorised to conduct their own Inspections or whether only the head officemay conduct them).

The nature and complexity of the Firms practice and organisation.


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The risks associated with the Firms Clients and specific Engagements.

110. The Inspection process includes the selection of individual Assurance Engagements, some ofwhich may be selected without prior notification to the Engagement Team. In determining thescope of the Inspections, the Firm may take into account the scope or conclusions of anindependent external Inspection program such as conducted by the Professional Bodies orregulator. However, an independent external Inspection program does not act as a substitute

for the Firms own internal Monitoring program.


111. In the case of small Firms, Monitoring procedures may need to be performed by individualswho are responsible for design and implementation of the Firms quality control policies andprocedures, or who may be involved in performing the Engagement Quality Control Review.A Firm with a limited number of persons may choose to use a Suitably Qualified ExternalPerson or another Firm to carry out Engagement Inspections and other Monitoringprocedures. Alternatively, the Firm may establish arrangements to share resources with otherappropriate organisations to facilitate Monitoring activities.

Evaluating, communicating and remedying identified deficiencies

112. A Firm shall evaluate the effect of deficiencies noted as a result of the Monitoringprocess and determine whether they are either:

(a) Instances that do not necessarily indicate that the Firms system of quality controlis insufficient to provide it with Reasonable Assurance that it complies withProfessional Standards and applicablelegal and regulatory requirements, and thatthe reports issued by the Firm or Engagement Partners are appropriate in thecircumstances; or

(b) Systemic, repetitive or other significant deficiencies that require prompt correctiveaction.

113. A Firm shall communicate to relevant Engagement Partners and other appropriate

Personnel deficiencies noted as a result of the Monitoring process andrecommendations for appropriate remedial action.

114. The reporting of identified deficiencies to individuals other than the relevant EngagementPartners need not include an identification of the specific Assurance Engagementsconcerned, although there may be cases where such identification may be necessary for theproper discharge of the responsibilities of the individuals other than the EngagementPartners.

115. Recommendations for appropriate remedial actions for deficiencies noted shall includeone or more of the following:

(a) Taking appropriate remedial action in relation to an individual Assurance

Engagement or member of Personnel;

(b) The communication of the findings to those responsible for training andprofessional development;

(c) Changes to the quality control policies and procedures; and

(d) Disciplinary action against those who fail to comply with the policies andprocedures of the Firm, especially those who do so repeatedly.

116. A Firm shall establish policies and procedures to address cases where the results ofthe Monitoring procedures indicate that a report may be inappropriate or thatprocedures were omitted during the performance of the Assurance Engagement. Suchpolicies and procedures shall require the Firm to determine what further action is

appropriate to comply with relevant Professional Standards and applicable legal andregulatory requirements and to consider whether to obtain legal advice.


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117. A Firm shall communicate at least annually the results of the Monitoring of its systemof quality control to Engagement Partners and other appropriate individuals within theFirm, including the Firms chief executive officer or, if appropriate, its managing boardof Partners. This communication shall be sufficient to enable the Firm and theseindividuals to take prompt and appropriate action where necessary in accordance withtheir defined roles and responsibilities. Information communicated shall include thefollowing:

(a) A description of the Monitoring procedures performed.

(b) The conclusions drawn from the Monitoring procedures.

(c) Where relevant, a description of systemic, repetitive or other significantdeficiencies and of the actions taken to resolve or amend those deficiencies.

118. Some Firms operate as part of a Network and, for consistency, may implement some oftheir Monitoring procedures on a Network basis. Where Firms within a Network operateunder common Monitoring policies and procedures designed to comply with thisStandard, and these Firms place reliance on such a Monitoring system, the Firmspolicies and procedures shall require that:

(a) At least annually, the Network communicate the overall scope, extent and results

of the Monitoring process to appropriate individuals within the Network Firms; and(b) The Network communicate promptly any identified deficiencies in the system of

quality control to appropriate individuals within the relevant Network Firm or Firmsso that the necessary action can be taken,

in order that Engagement Partners in the Network Firms can rely on the results of theMonitoring process implemented within the Network, unless the Firms or the Networkadvise otherwise.

Complaints and allegations

119. A Firm shall establish policies and procedures designed to provide it with ReasonableAssurance that it deals appropriately with:

(a) Complaints and allegations that the work performed by the Firm fails to complywith Professional Standards and applicablelegal andregulatory requirements; and

(b) Allegations of non-compliance with the Firms system of quality control.

As part of this process, the Firm shall establish clearly defined channels for FirmsPersonnel to raise any concerns in a manner that enables them to come forward withoutfear of reprisals.

120. Complaints and allegations (which do not include those that are clearly frivolous) may originatefrom within or outside the Firm. They may be made by Firms Personnel, Clients or other thirdparties. They may be received by Engagement Team members or other Firms Personnel.


121. Policies and procedures established for the investigation of complaints and allegations mayinclude for example, that the Partner supervising the investigation:

Has sufficient and appropriate experience;

Has authority within the Firm; and

Is otherwise not involved in the Engagement.

The Partner supervising the investigation may involve legal counsel as necessary.

122. If during the investigations into complaints and allegations, deficiencies in the design oroperation of the Firms quality control policies and procedures or non-compliance withthe Firms system of quality control by an individual or individuals are identified, the Firmshall take appropriate actions as set out in paragraph 115.


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123. It may not be practicable, in the case of Firms with few Partners, for the Partner supervising theinvestigation not to be involved in the Engagement. These small Firms and sole practitionersmay use the services of a Suitable Qualified External Person or another Firm to carry out theinvestigation into complaints and allegations.

Documentation of the system of quality control

124. A Firm shall establish policies and procedures requiring appropriate documentation toprovide evidence of the operation of each element of its system of quality control.

125 The form and content of documentation evidencing the operation of each of the elements of thesystem of quality control is a matter of judgment and depends on a number of factors, includingthe following:

The size of the Firm and the number of offices.

The nature and complexity of the Firms practice and organisation.

For example, large Firms may use electronic databases to document matters such as

Independence confirmations, performance evaluations and the results of Monitoring Inspections.

126. Appropriate documentation relating to Monitoring should include, for example:

Monitoring procedures, including the procedure for selecting completed Engagements to beinspected.

A record of evaluation of:

Adherence to Professional Standards and applicable legal and regulatory requirements;

Whether the system of quality control has been appropriately designed and effectivelyimplemented; and

Whether the Firms quality control policies and procedures have been appropriately

applied, so that reports that are issued by the Firm or Engagement Partners areappropriate in the circumstances.

Identification of the deficiencies noted an evaluation of their effect, and the basis fordetermining whether and what further action is necessary.


127. Smaller Firms may use more informal methods in the documentation of their systems of qualitycontrol such as manual notes, checklists and forms.

128. A Firm shall establish policies and procedures that require retention of documentation fora period of time sufficient to permit those performing Monitoring procedures to evaluate

the Firms compliance with its system of quality control, or for a longer period if requiredby law or regulation.

129. A Firm shall establish policies and procedures requiring documentation of complaintsand allegations and the responses to them.

Effective Date

130. Systems of quality control in compliance with this Standard are required to be established by1 January 2010. Firms should consider the appropriate transitional arrangements forEngagements in process at that date.


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Conformity with International Pronouncements

APES 320 and ISQC 1

APES 320 incorporates ISQC 1 Quality Control for Firms that Perform Audits and Reviews of FinancialStatements, and Other Assurance and Related Services Engagements issued by the IAASB. Words

have only been changed where there is a need to accommodate Australian legislation and environment,and to fit within the structure of APES 320. These changes do not affect the substance of therequirements. Where paragraphs of APES 320 have no equivalent in the corresponding internationalstandard, they are denoted with the letters AUST before the paragraph number.

Compliance with ISQC 1

The basic principles and essential procedures of APES 320 and ISQC 1 are consistent except for:

The addition of paragraphs prefixed as AUST in APES 320; and

The Scope and application section included in APES 320 in accordance with APESBs draftingconventions.


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Appendix

Application requirements for Firms

The application requirements for Firms are summarised in the flow chart below.

Does the Firm conduct any AssuranceEngagements?

The Firm is deemed to have anAssurance Practice. Every AssuranceEngagement must be categorised as

forming part of the Assurance Practice.

Apply APES 320 excludingboxed Assurance Practicesonly paragraphs to the Firm.

Apply the whole of APES 320 tothe Assurance Practice of the

Firm.

Apply APES 320 excludingboxedAssurance Practices only paragraphs tothe rest of the Firm.

YES

NO

APES 320 Quality Control for Firms-Revised.pdf

Documents

Transcript of APES 320 Quality Control for Firms-Revised.pdf